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As many of you by now know, the U.S. Supreme Court granted South Dakota's certiorari petition in South Dakota v. Wayfair, Inc. et al., No. 17-494 and has scheduled oral arguments for April 17, 2018. The Wayfair case involves the constitutionality of South Dakota's economic nexus statute that requires out-of-state, online retailers lacking a physical presence in the state to collect and remit sales tax on their sales delivered to South Dakota customers. See S.B. 106 (S.D. 2016). The South Dakota law imposes a use tax collection obligation on out-of-state retailers if the retailer's gross destination sales are $100,000 or more or the retailer enters into 200 or more transactions involving sales shipped to South Dakota locations, as determined on an annual basis.

Illinois now proposes to enter the fray. Senator Cristina Castro introduced legislation ( SB 2577) intended to address remote sellers not collecting state-level use tax on sales to customers in Illinois. The proposed legislation is billed as the Marketplace Fairness Act. [1] SB 2577 proposes to amend the Use Tax Act to provide that if an out-of-state retailer, on an annual basis, makes (i) gross destination sales of $150,000 or more or (ii) enters into 200 or more transactions involving sales shipped to Illinois purchasers, the out-of-state retailer will be considered to be maintaining a place of business in Illinois and will required to collect and remit the tax his or her Illinois destination sales. This determination is made on a quarterly basis ending on the last day of March, June, September and December. An amendment proposed by the bill's author reduces the gross destination sales threshold to $100,000, which matches the South Dakota statute at issue in Wayfair. It must be noted that SB 2577, however, does not impact taxes at the local level as localities are prohibited under the Illinois Constitution from imposing a use tax. Consequently, sales by remote sellers will remain not subject to a local use tax, continuing the tax disparity between in-state sales and sales by remote sellers.

Should Wayfair be decided in favor of the state, one can assume that an economic presence will be sufficient to satisfy the substantial nexus prong of the dormant Commerce Clause test enunciated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977). Issues, however, are bound to arise. First, how much presence will be sufficient to constitute a substantial nexus? Will destination sales of $50,000 or 100 or more transactions be sufficient? Next, what about states that have not adopted a South Dakota economic nexus type statute? Will they seek to impose a use tax collection obligation on any out-of-state retailer making sales into the state without regard to the level of sales or number of transactions? And, finally, should Quill's physical presence standard be overturned? Does it need to be overturned? What about potential retroactive application? In states such as South Dakota and, potentially, Illinois, that have adopted legislation which, by its own terms, is prospective, retroactivity will not be an issue. What other states may do is a toss-up.

SB 2577 intends to answer many of these potential questions that will arise should economic presence be sufficient to impose a collection obligation on a remote seller. Indeed, by matching South Dakota's statute at issue in Wayfair, SB2577 allows Illinois to "piggyback" on an endorsed economic presence threshold. Furthermore, SB2577 is not effective until January 1, 2019, if enacted, which is well after a decision in Wayfair will be issued. This prospective application would seemingly limit any retroactive taxation concerns for Illinois destination sales by remote sellers. On the other hand, should Wayfair be decided in favor of the taxpayer, SB 2577 would be subject to a challenge and likely found to be in violation of the dormant Commerce Clause, too.

Will Quill Corp. v. North Dakota, 504 U.S. 298 (1992) be overturned by the U.S. Supreme Court in Wayfair? To answer that question one must remember that in Quill, the Court essentially punted the issue to Congress. That was in 1992, some twenty-five (25) years ago. Perhaps in granting certiorari, the Court has expressed its frustration with Congress's inability to tackle the issue and will, itself, in recognition of the change in the retail landscape, reverse its decision in Quill and scrap the physical presence standard. Indeed, Justice Kennedy's oft-cited concurrence in Direct Marketing Association v. Brohl, 575 U.S. ___ (2015), which strongly suggests that Quill was wrongly decided and is ripe for reconsideration, lends credence to that view. On the other hand, perhaps the Court will use Wayfair to remind Congress that the responsibility is theirs.

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